Results

GenM reported 1HFY14 core PATAMI of RM618.9m came in below expectations, accounting for only 41.7% and 40.8% of HLIB’s and consensus’ full year earnings.

Deviations

Weaker-than-expected performance from all divisions.

Dividends 

Declared single tier interim dividend of 3 sen/share (2QFY13: 3.4 sen/share), representing payout and yield of 28% and 0.6% respectively.

Highlights

Revenue: Group revenue was down by 3.7% mainly due to the weaker performance by its operations in Malaysia and UK, mitigated by a 12.1% growth in US operations postcommencement of Resorts World Bimini and dividend income from Genting Hong Kong (GenHK).

PBT: Impacted further (-18.8%) on the back of higher payroll costs in Resorts World Genting (RWG) and Resorts World New York (RWNY), operational challenges in Bimini and weaker performance from UK. There were higher depreciation and amortization charges incurred in 1HFY14 as well.

Weaker performance in RWG was largely due to lower hold percentage and lower visitor arrivals into the resort resulted from the closure of its outdoor theme park. On Genting Integrated Tourism Plan (GITP), it plans to open 500 rooms (out of total 1,300 rooms) by end-FY14 with the balance by mid-FY15. Other work-in-progress includes the cable car system, outdoor theme park, and the podium of the new hotel.

In New York, GenM is due to present their proposal to the NYS Gaming Commission on 9 Sept 2014, with hopes to obtain a result on gaming license by end of the year.

In Miami, there were no further developments in the integrated resort legislation as the government would need to negotiate terms with the existing casino operations (tribal casinos) before announcing the next stage of the legislation status.

In UK, the construction and development of Resorts World Birmingham continues and is expected to open in 2QFY15.

Risks

1) Regulatory risk; 2) Weaker hold percentage; 3) Pandemic breakouts; 4) Cannibalization from Macau & Singapore; 5) Appreciation of RM; and 6) Bill on full gaming operations in New York not approved.

Forecasts

We imputed lower revenue growth in Malaysia operation on the back of lower visitor arrivals, as well as lower margins for US operations due to losses in Bimini and higher payroll costs in RWNY. As such, FY14-16 earnings are reduced by 19%, 9.2% and 9.4% respectively.

Rating

HOLD

Positives –

(1) Defensive stock; (2) Monopoly in the domestic industry; and (3) New source of earnings from international markets to drive earnings growth

Negatives –

(1) Highly regulated industry; and (2) earnings highly dependable on luck factor and hold percentage

Valuation

Post-earnings revision, TP is cut slightly to RM4.16 (from RM4.39) based on SOP valuations. Maintain HOLD.

Source: Hong Leong Investment Bank Research - 29 Aug 2014